Sorrento Therapeutics, Inc. is a clinical and commercial stage biopharmaceutical company developing a diverse portfolio of next-generation treatments in three key therapeutic areas: cancer, infectious disease, and pain management. With a history dating back to 2006, the company has faced its fair share of challenges, but has also demonstrated resilience and a steadfast commitment to advancing innovative solutions.
Business Overview and Historical Perspective Sorrento Therapeutics was founded in 2006 with the vision of transforming science into "Saving Life Medicines." The company's initial focus was on isolating and advancing human antibody drug candidates derived from its proprietary G-MAB antibody library. In its early years, Sorrento began developing its immuno-oncology platforms, including immuno-cellular therapies, antibody-drug conjugates, oncolytic viruses, and lymphatic drug delivery solutions.
A significant milestone in Sorrento's history came in 2018 when the company launched its first commercial product, ZTlido, a lidocaine topical product for pain management, through its subsidiary Scilex Holding. This marked Sorrento's entry into the commercial pharmaceuticals market.
In 2022, Sorrento achieved another important milestone when Scilex Holding made its Nasdaq debut following the completion of its business combination with a special purpose acquisition company. Scilex Holding is focused on becoming a global leader in pain management, with a commercial portfolio that includes ZTlido and the recently acquired product Gloperba for gout.
Throughout its history, Sorrento has faced various obstacles, including legal disputes, regulatory hurdles, and the challenges of developing innovative therapeutic solutions. However, the company has remained committed to its mission of transforming science into Saving Life Medicines and has continued to make progress in advancing its diverse pipeline of product candidates.
Navigating Challenges and Adapting Sorrento's journey has not been without its challenges. In 2019, the company found itself embroiled in a legal dispute with NantPharma, LLC and NantCell, Inc. related to the development and commercialization of the cancer drug Cynviloq. This dispute culminated in a series of arbitration proceedings and legal actions that ultimately led Sorrento to file for Chapter 11 bankruptcy protection in February 2023.
During the bankruptcy proceedings, Sorrento has continued to operate its business while navigating the complex legal and financial landscape. The company has secured debtor-in-possession (DIP) financing to provide the necessary liquidity to fund its operations and has been actively pursuing a dual-track strategy of exploring financing options and marketing the sale of its assets, including its equity interests in its non-debtor subsidiaries.
Sorrento's resilience was further tested in 2023 when Silicon Valley Bank, a key financial institution for the company, was closed by regulators. However, Sorrento was able to regain access to its deposits with the bank, mitigating the potential impact on its operations.
Positioning for the Future Despite the challenges, Sorrento remains focused on advancing its diverse pipeline of product candidates. In the cancer space, the company continues to progress its proprietary antibody and small molecule libraries, as well as its immuno-oncology platforms. Sorrento's cancer segment is driven by its proprietary fully human G-MAB antibody library and ACEA small molecule library, which are enhanced by leveraging extensive proprietary immuno-oncology platforms such as immuno-cellular therapies DAR-T, antibody-drug conjugates (ADCs), oncolytic virus (Seprehvec), and lymphatic drug delivery (Sofusa).
In the infectious disease arena, Sorrento is developing next-generation mRNA vaccines, protease inhibitor antivirals, and mesenchymal stromal cell therapies to address COVID-19 and future pandemic threats. The company has applied its antibody and small molecule capability to develop highly sensitive and rapid diagnostics, and multi-modal treatments for the SARS-CoV-2 virus and its variants. Sorrento's diagnostics platforms include the COVIMARK lateral flow antigen test launched as COVISTIX in Mexico and Brazil, and the VIREX platform, which leverages existing worldwide manufacturing infrastructure for glucometers and glucose strip tests to provide affordable and highly scalable, next-generation diagnostic solutions for infectious diseases, liver cancer, and other biomarkers. Therapeutic solutions include a next-generation mRNA Omicron vaccine (STI-1557), a next-generation protease inhibitor antiviral pill (STI-1558) as a stand-alone treatment not requiring the Ritonavir booster, and a variant agnostic mesenchymal stromal cell therapy for people with long COVID.
Moreover, Sorrento's pain management subsidiary, Scilex Holding, has demonstrated strong commercial performance with its flagship product, ZTlido, and is preparing for the potential launch of its lead pipeline candidate, SEMDEXA, an injectable viscous gel formulation of a corticosteroid designed to address the limitations of traditional epidural injections. Scilex Holding has built a commercial organization focused on neurologists and pain specialists and intends to leverage this capability for the potential launch of next-generation products that are currently in development.
Financial Performance and Liquidity Sorrento's financial performance has been impacted by the ongoing challenges it has faced. For the three months ended June 30, 2023, the company reported total revenues of $15.03 million, up 31% from the prior year period. This was driven by a 59% increase in product revenues in the Scilex segment to $12.58 million, partially offset by a decrease in service revenues in the Sorrento Therapeutics segment. The decrease in service revenues was due to lower COVISTIX product sales and lower contract manufacturing service revenues.
Sorrento reported a net loss of $95.2 million in the most recent quarter, compared to a net loss of $218.8 million in the same period last year. This improvement was primarily due to a $64.3 million gain recognized on contingent consideration associated with the ACEA acquisition in the prior year period, partially offset by increased reorganization costs of $22.0 million related to the company's Chapter 11 bankruptcy proceedings.
Operating cash flow was -$55.7 million and free cash flow was -$55.8 million in the most recent quarter, compared to -$164.4 million and -$164.4 million, respectively, in the same period last year. The improvement in cash flows was primarily due to changes in working capital.
The company's liquidity situation has been a key focus during the bankruptcy proceedings. As of June 30, 2023, Sorrento had $69.75 million in cash and cash equivalents. The company has secured DIP financing, including a $75 million senior DIP facility and a $20 million junior DIP facility, to provide the necessary funding to continue its operations and development activities. Both facilities were fully drawn as of the end of the most recent quarter.
Sorrento's financial position remains challenging, with a current ratio of 0.29 and a quick ratio of 0.26. The company's debt/equity ratio cannot be calculated due to the negative equity position of -$197.96 million as of June 30, 2023.
Risks and Outlook Sorrento faces several key risks, including the ongoing uncertainty surrounding the outcome of its Chapter 11 bankruptcy proceedings, the potential inability to confirm a reorganization plan or secure sufficient financing to emerge from bankruptcy, and the inherent risks associated with the development and commercialization of pharmaceutical products.
Furthermore, the company's legal disputes with NantPharma and NantCell continue to pose a significant risk, as the resolution of these matters could have a material impact on Sorrento's financial position and operations. In December 2022, the company received a $125 million award in the Cynviloq arbitration, but also received adverse rulings totaling $173.5 million in the NantCell/NANTibody arbitration. These legal issues ultimately led to the company's bankruptcy filing.
The company also faced a securities class action lawsuit filed in 2020 alleging the company made false and misleading statements regarding its COVID-19 drug candidate STI-1499. This lawsuit was ultimately dismissed in 2022, but the company may face additional litigation risks going forward.
Despite these challenges, Sorrento remains cautiously optimistic about its future prospects. The company's diversified pipeline, commercial products, and the potential sale of its equity interests in Scilex Holding provide a foundation for long-term growth, provided it can successfully navigate the bankruptcy process and secure the necessary financing to execute its strategic plans.
Conclusion Sorrento Therapeutics has faced a tumultuous few years, marked by legal disputes, a bankruptcy filing, and broader industry challenges. However, the company's resilience, innovative pipeline, and commercial assets position it for potential success, should it be able to emerge from bankruptcy in a stronger financial position. The outcome of the Chapter 11 case and the company's ability to reorganize and continue its drug development and commercialization efforts remains highly uncertain. Investors will continue to closely monitor Sorrento's progress as it navigates the road ahead.